How to Profit From the "NVIDIA Effect"
By Jim Pearce
It is sometimes said that it is better to get in a stock too early than too late. Once a stock takes off, many investors will wait for it to reverse direction so they can buy it at a lower price.
Of course, that doesn't always happen. At least, not right away. You need look no further than the hottest stock on Wall Street for proof of that.
Two years ago, NVIDIA (NSDQ: NVDA) could be bought for less than $18 (split-adjusted). Two weeks ago, it crested above $140 before taking a breather.
A year ago, you could have bought NVIDIA for $40. But that price seemed high compared to where it was a year before that.
Six months ago, NVIDIA was up to $50. Once again, many investors chose to wait in the hope that it might pull back.
That didn't happen. Three months later it was up to $90. Had you bought it then, you'd have racked up a 30% gain in just ninety days.
But had you paid $140 for NVIDIA on June 20, you would have suffered a 15% loss in less than a week. That has some investors wondering if that sudden drop in share price represents a buying opportunity or signals a change in direction for the stock.
That question can only be answered in hindsight.
If NVIDIA is trading for $200 a year from now, then investors will kick themselves for missing out on this opportunity. But if it is going for $50 at that time, then buying it now would be a costly mistake.
Late Bloomer
The huge surge in NVIDIA's share price has triggered a buying spree on Wall Street. Any company that is perceived to be a beneficiary of the artificial intelligence (AI) revolution is in play.
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